Risks to be reduced/Transparency through transaction register
The European Parliament calls for strict legislation and supervision of risk-based derivatives. "What we need is more transparency in the derivatives markets. Our Resolution is a clear signal to the Council and the Commission to get EU legislation going as soon as possible. Derivatives play a role in minimising risk, but they can also be abused for speculation purposes", said European Parliament Rapporteur Werner Langen MEP.
Derivatives that have been subject to bilateral trading are bound to be settled through so-called clearing bodies. "We call for a standardised procedure, the use of transaction registers, of central clearing bodies and or organised trading platforms wherever possible", according to the EP Resolution. MEPs want to distinguish between derivatives supposed to hedge operational company business and those serving speculation purposes that have contributed to the recent economic and financial crisis. "It is the risk-intensive derivates we need clear standards and reporting requirements for", said the CDU MEP.
Members call for the clearing bodies in charge of the settlement of derivatives to be independent of the company board and to include standards for risk management. The future EU securities supervisory body ESMA is to be in charge of the supervision, together with the national supervisory bodies. Essential to the efficient supervision is a barrier-free access of the national and the European supervisor to the data of the transaction registers.
MEPs want to exempt companies with no systemic risks. "My thanks go to Commissioner Barnier who launched a consultation on derivatives and credit-default swaps. A legal proposal could follow soon and the new EU standards could be operational by the end of the year given the Council will not block", said the European Parliament Rapporteur.
There is some controversy, however, over derivatives from third countries. A majority of MEPs call for all derivatives with either an EU currency denomination, or those that are related to an EU company, or those any financial institution in the EU deals with, to be cleared and settled in the EU.
